Diesel Is Playing Out What Some Feared About Subsidy Removal

The price of diesel has risen by over 31 percent since the government announced an increase in the price of fuel and basically removing fuel subsidy.

Subsidy on diesel has been removed for years leading to a fairly stable price determined largely by market forces . This has made diesel a reference point to those who have long supported a full deregulation of the downstream sector. They believed that with the removal of subsidy on fuel, the price will adjust the same way diesel had for some years. They even opined that the price will start to drop once market forces take control.

Analysts explain that the rising cost of diesel in recent times is due to a scarcity in the product as importers are still struggling to find dollars to pay for their imports. They explain this is the same reason why aviation fuel has been scarce for weeks.

With the price rising by 10 percent nearly every week since the removal of subsidy on fuel, there are strong indications that diesel may well hit N200 in a matter of days.

Some analysts believe this could also be a form of price discovery as the market is basically replicating the margin difference between diesel price and fuel price as it were before the subsidy removal. Diesel had a N65-N70 price premium over fuel using the former official pegged price for petrol.

This basically buttresses what many feared about subsidy removal. Whilst the impression is such that market forces will prevail, the inelastic nature of diesel and fuel provide room for an oligopoly. It is also feared that a bit of scarcity or shortage in supply could see marketers frequently exploit consumers for the product.

Diesel is used by thousands of small businesses and large corporations to power operations, an alternative over the grid. The rising cost of diesel is bound to blow up operating cost for most companies considering the dismal state of power supply in the last few months.

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